Intel Sales May Top Estimates on Corporate PC Demand

Intel Corp. (INTC), the world’s largest semiconductor maker, forecast second-quarter sales that may exceed some analysts’ estimates as improving corporate orders help stabilize the declining personal-computer market.

Revenue will be $13 billion, plus or minus $500 million, the company said today in a statement on its website. Gross margin, or the percentage of sales left after deducting the cost of production, will be about 63 percent. On average, analysts had estimated sales of $12.96 billion and gross margin of 59.8 percent, according to data compiled by Bloomberg.

Business at Intel, whose chips power more than 80 percent of the world’s PCs, is picking up as companies upgrade office machines, spurred by Microsoft Corp.’s end to support for its Windows XP operating system. The shift to newer software may be prompting corporations to evaluate their networks and buy more replacement equipment, said Ian Ing, an analyst at MKM Partners.

“Once people got into the mode of upgrading, they decided to take a closer look at their current assets,” said Ing, who has the equivalent of a hold rating on Intel’s stock. “It goes well beyond the XP obsolescence.”

Intel shares rose as high as $27.85 in extended trading. The stock, which gained less than 1 percent to $26.77 at the close in New York, has climbed 3.1 percent this year, compared with a 3.4 percent drop in the Nasdaq Composite Index.

Photographer: Daniel Acker/Bloomberg

Business at Intel Corp., whose chips are the central component in more than 80 percent of the world’s PCs, is picking up as customers upgrade office machines after Microsoft Corp. ended support for its Windows XP operating system. Close

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Photographer: Daniel Acker/Bloomberg

Business at Intel Corp., whose chips are the central component in more than 80 percent of the world’s PCs, is picking up as customers upgrade office machines after Microsoft Corp. ended support for its Windows XP operating system.

PC Market

As the PC market heads for a third straight annual decline, Chief Executive Officer Brian Krzanich has made the faster-growing mobile market -- which Intel has been trying to crack for more than a decade -- a priority. He’s working to jump-start Intel’s progress in areas outside of PCs, such as phones, tablets and wearable devices.

The Santa Clara, California-based company said first-quarter net income fell 4.8 percent to $1.95 billion, or 38 cents a share, from $2.05 billion, or 40 cents a share, a year earlier. Sales climbed 1.5 percent to $12.8 billion. Analysts had predicted earnings of 37 cents a share on revenue of $12.8 billion.

Gross margin in the recent period widened to 59.7 percent from 56.1 percent. For the year, Intel said gross margin will be about 61 percent, 1 percentage point higher than a previous forecast.

The improvement in the PC market is only partially because of Windows XP winding down, Intel Chief Financial Officer Stacy Smith said. Consumers and companies are being tempted to buy new machines as the average age of computers in use increases, he said.

Aging Computers

“We’re seeing some stabilization of the market,” Smith said in a telephone interview. “It’s really driven by an aging installed base.”

Intel’s report kicks off three weeks of earnings releases by the largest U.S. technology companies. Researcher IDC last week said first-quarter PC unit shipments fell 4.4 percent from a year earlier to 73.4 million. While the market is still on course to contract this year, corporate demand in developed markets helped make up for weak sales to consumers in emerging markets in the first quarter, IDC said, citing Microsoft’s end to Windows XP support.

The recent quarter was the first period that Intel has broken out the financial performance of its unit that is trying to break into the mobile-phone chip market, where Qualcomm Inc. takes more than 60 percent of the revenue.

The numbers weren’t encouraging. Sales in the mobile and communications group, which includes Intel’s tablet and phone chips, fell to $156 million from $404 million a year earlier. The unit’s operating loss widened to $929 million.

‘Highly Competitive’

Through its 2011 acquisition of Infineon Technology AG’s wireless business, Intel supplies modems for phones that connect to older, slower networks. Like other chipmakers, this year Intel is starting to field LTE-capable modems, aiming to shake Qualcomm’s grip on the most profitable part of the market.

“Getting into the mobile market is obviously very difficult,” said Brian Fox, a fund manager at Standard Life Investments in Boston, which has $305 billion of assets under management. “It’s highly competitive and the profit pool is fairly concentrated. It comes down to needing to win one of a few flagship phones.”

In tablets, where Intel has also struggled to win chip orders, Krzanich has promised to get his company’s products in 40 million units this year. The chipmaker shipped 5 million tablet processors in the first quarter, Intel said in today’s statement.

Revenue in Intel’s PC-chip business fell to $7.94 billion, while operating profit in that division rose to $2.8 billion. Server-chip unit sales increased to $3.1 billion with operating profit rising to $1.32 billion.

Increasing demand for chips used in other Web-linked electronics, such as retail checkout systems and entertainment and information systems in cars, boosted sales at Intel’s Internet of Things division by 32 percent to $482 million. Operating profit in that group jumped 84 percent to $123 million.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net Jillian Ward, Ari Levy

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